CNBC's "House of Cards" Program On Financial Excess

I just finished watching more than half of CNBC's special program, "House of Cards," written by, I believe, and starring David Faber.

The program was extremely well done. It captured various elements of the financial and real estate systems, regulators, their interactions, and the consequences of all of their actions over the past eight years.

Of particular effect, and interest, was the inclusion of European municipal investors in CDOs, the mortgage- and other debt-backed structured finance instruments, as well as lenders and borrowers of mortgage money fueling the manufacture of such instruments.

As I listened to the mayor of Narvik, Norway, accuse American banks, European financial products salesmen, and ratings agencies of misleading her, and her town council, so that they bought CDOs, I could not help but detect a strong odor of denial.

The woman clearly admitted that the financial products vendor told the town's council that CDO yields would be higher than that of safer instruments. They bought this lie, and even admitted, after the fact, that they had no idea what they actually had purchased. Neither did their banker, nor, the banker thought, did the salesman of the products.

If you're like me, by now, you are asking yourself how anybody can protect these clueless municipalities from buying instruments they don't understand. Or even actually know, in detail.

It's one thing to buy a AAA-rated American municipal or corporate bond. It's quite another to buy a newly-issued, untested structured finance instrument, also AAA-rated, the yield on which is higher than expected.

Several California home buyers admitted they neither understood, nor could afford their mortgages. Yet they still accused their lenders of guilt in lending them the money for their house.

A mortgage banker solemnly asserted that, although he knew low-doc and no-doc mortgages would blow up, he had to lend, or else he'd have to close down, as other lenders made such loans.

Of course, he had to close eventually, because the few low-doc subprime loans he made, when in default, wiped out his firm.

Even Alan Greenspan impassively claimed that he could not have popped the housing finance bubble if he'd wanted to, because Congress would have been unhappy with the resulting halt in low-income housing sales, as well as the consequential economic recession.

It seems everyone has someone else to blame.

But nobody seems to really take responsibility for their own part. Greenspan blames Congress. Congress blames mortgage bankers, securitizers, and regulators. Regulators blame a lack of funding from Congress. Investors blame rating agencies. Congress blames rating agencies. Rating agencies claim they did nothing wrong. Lenders blame borrowers and securitizers.

When Faber ends the program asking each person what they learned, and if they feel guilty of any wrongdoing, they all claim to simply be a part of a chain of players and events which, together, caused the problem. Nobody took responsibility for his or her part.

Even the mayor of Narvik somewhat disingenuously claimed that she had learned two things; not to trust financiers in Armani suits, and; if something seems to good to be true, it probably is.

The sad thing is, that second lesson is the very first lesson in finance. And why was the Narvik town council borrowing against the municipal power generation plant's future revenues to buy CDOs without professional advice in the first place?

But perhaps the most searing and revealing moment in the entire program, during the time I watched, was the last scene. Faber is closing his interview with the guy, whose name escapes me, who was head of structured financial product creation for Bear Stearns. The man wisely and propitiously left the firm just weeks before its demise, and now pursues photography. He clearly was not ruined in the aftermath of the failed investment bank.

When Faber asks him if he feels guilty for his role in the mess, the man moves to speak. But cannot. He looks away, snorts, shrugs, but Faber and the camera will not be denied.

Eventually, holding back obvious grief, guilt, and shame, trying desperately to decide, in an instant, whether to admit the truth on global television, or not, the man sniffs and says he was just part of a larger chain....yada....yada....yada......

It's a very poignant and sad moment. You can actually see this man choose denial, lying, and a loss of ethics in favor of avoiding responsibility for his and his firm's actions in the overall financial markets excess of the past decade.

There were and are many guilty parties. There's no doubt about that. But at the end of the day, I can't help but focus on two types of parties in particular.

Those who borrowed money to buy houses using mortgages they both did not understand, and could not afford. And those institutional investors, including small town mayors and councils in Europe and America, who bought what they believed to be high yielding structured securities, for less money than was expected, as I wrote about here, thinking they were getting extra yield for free.

Granted, those in the middle of the chain, between these two types of parties, committed fraud, excess, and errors of judgment. But none of it would have been sustainable without the uncoerced behavior of mortgage borrowers and structured financial instrument buyers. These parties received what they asked for.

What happened to them was, truly, just. They simply don't want to admit that, and take responsibility now for their prior actions. It's easier for them to blame somebody else.